On August 27, 2021, in Oklahoma Gas and Electric Company v. FERC, Case No. 20-1062, the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) denied petitions for review of FERC’s orders involving the Southwest Power Pool, Inc. (“SPP”) process for reimbursing certain of its customers for transmission system upgrades that those customers paid for pursuant to Attachment Z2 of SPP’s Open Access Transmission Tariff (“Tariff”). The D.C. Circuit’s order upheld FERC’s decision to deny retroactive waiver of Section I.7.1 of SPP’s Tariff—which provides that any billing adjustments must be made within one year after the charges were incurred—thus preventing SPP from implementing the Attachment Z2 revenue crediting process retroactively from 2008-2016. The court also upheld FERC’s orders requiring SPP to refund any charges it previously collected for the 2008-2016 period. Basing its decision on the filed rate doctrine, the court concluded that “the filed rate requirements are a formidable obstacle for entities regulated by FERC that wish to obtain retroactive relief from the terms of their tariff.”

The court explained that under SPP’s Attachment Z2, a generator that initially funds certain upgrades to the transmission system as part of its request to interconnect to the grid can be reimbursed for its investment with proceeds from subsequent users—i.e., transmission service customers—of the upgraded transmission facilities. Specifically, the upgrade sponsor receives credits from any transmission service customers whose service could not be provided “but for” the upgrade; reimbursement would continue until the upgrade sponsor is fully reimbursed.

Although Attachment Z2 has been included in SPP’s Tariff since 2008, due to software limitations SPP was unable to implement Attachment Z2 until August 2016. However, Section I.7.1 of SPP’s Tariff prevents SPP from billing for upgrade charges more than one year after the charges were incurred. As a result, in April 2016, a few months before SPP planned to implement Attachment Z2, SPP filed a petition for waiver of Section I.7.1, requesting that FERC permit it to implement the Attachment Z2 revenue crediting process for the period spanning 2008-2016.

FERC initially granted the petition for waiver in November 2016 (see October 11, 2016 edition of the WER), and upheld its order on rehearing in November 2017. Shortly thereafter, certain SPP market participants petitioned the D.C. Circuit for review of FERC’s 2016 and 2017 orders, arguing that FERC improperly granted waiver of Section I.7.1 and that the orders violated the rule against retroactive ratemaking and the filed rate doctrine. Before the D.C. Circuit could decide the case, in July 2018 FERC sought, and the court granted, a voluntary remand of the proceedings. In a remand order issued in February 2019, FERC reversed course: FERC denied SPP’s 2016 request for waiver, holding that waiver would impermissibly allow for retroactive billing of upgrade users in contravention of the filed rate doctrine. FERC ordered SPP to refund the upgrade charges it had already collected from upgrade users for the 2008-2016 period, with interest, and instructed SPP to file a plan detailing how it proposed to make the refunds required by its order. FERC denied requests for rehearing of its February 2019 order, and appeals to the D.C. Circuit followed.

In its August 27, 2021 decision denying the petitions for review, the D.C. Circuit held that: 1) a plain reading of Section I.7.1 establishes that SPP cannot bill for upgrade charges more than one year after the charges were incurred; and 2) FERC’s February 2019 order and rehearing order denying waiver were reasonable and consistent with the filed rate doctrine and statutory limits on FERC’s authority to modify rates retroactively.  The D.C. Circuit went on to hold that FERC reasonably exercised its remedial authority in ordering SPP to refund the upgrade charges it previously collected under FERC’s initial waiver granted in November 2016. The court recognized that its ruling would prevent upgrade sponsors from recovering their costs for most of the 2008-2016 period, explaining:

Whatever the equities of this situation, the Commission’s decision to order the refund was a reasonable exercise of its remedial authority in light of its determination that the initial waiver violated the filed rate requirements and the upgrade charges would not have been collected but for that waiver. The outcome here should serve as a cautionary reminder to parties that, if circumstances change, they should take action at the outset, such as by seeking to amend the tariff or requesting prospective waivers from FERC to act in contravention of a filed rate.

The D.C. Circuit’s August 27, 2021 decision is available here.